Ameritrade Adds SMAs to Attract Accounts $50M-Plus

Ameritrade, a well-established online brokerage firm, says it is targeting investment advisers, large and small, to develop assets and build wallet share and is making rapid progress because of a big pricing advantage.

"We have the advantage. We are the cheapest. Not by a little bit but by a lot," said James C. Wangsness, a senior vice president and the company's national sales manager. "We have established ourselves as the home for active traders," he added, "but we wanted to grow beyond that. We want to develop relationships through intermediaries."

Wangsness said Ameritrade is starting an initiative in pursuit of large advisers, those with more than $50 million of assets under management. Its Ameritrade Advisor Services unit has for two years emphasized advisers with $5 million to $50 million of assets under management and now has $2.14 billion of assets under custody, up from $200 million at the end of 2002.

To appeal to larger investors, Ameritrade began offering managed accounts last month. Wangsness said the company has already signed up a "host" of firms for the managed account service because Ameritrade's fees for managed accounts are 33% lower than its competitors'.

Wangsness said Ameritrade is developing customers and new business simply because it charges, across the board, 150 basis points to its competitors' 225.

Huge Advantage'

"At first, we didn't think we'd appeal to the larger brokers, but we are appealing to them because having lower fees is a huge advantage," he said. "We are developing market share by offering services to small and large advisers. We want to truly compete with the wirehouses."

Wangsness said the company is making a "significant push" for advisers this year. The closing in January of its purchase of Bidwell & Co., a Portland, Ore., advisory firm added 80 advisory relationships, he said, and $540 million of assets under custody in the advisory channel. Ameritrade has relationships with 1,000 advisers, but Wangsness said this is less than 5% of the market.

To serve advisers, Ameritrade has broadened its roster of products and services. In the past two years it has increased the number of mutual funds it offers from 900 to 2,500. In January, it formed a partnership with MuniCenter, an online fixed-income center, to offer institutional-priced bonds to advisers for individuals. And last month, it started an online exchange-traded-fund center.

Ameritrade faces stiff competition in the market from brokerage companies such as Fidelity Investments, Charles Schwab and TD Waterhouse. The latter also has unveiled an aggressive initiative to pursue advisers. Its institutional services group supplies back-office services such as custody and clearing to independent fee-based advisers. In 1995, TD Waterhouse had less than $1 billion of assets through the advisory channel but now has about $30 billion. It has said it expects to reach $50 billion of assets under custody within three years.

"This is a relationship business, and price is only one component of the overall adviser-custodian relationship," said Sarah Friedell, a Fidelity spokeswoman. The company has 2,200 adviser relationships and more than $100 billion of assets under custody after 10 years in the business.

Schwab said it has $287 billion of adviser assets, or 30% of its total, in 5,100 adviser relationships. It offers 3,110 mutual funds in the business it started in April 1987. TD Waterhouse said it does not comment on its competitors.

"Ameritrade has made nice progress for its first couple of years in the marketplace but has a lot of competitors," said Burton Greenwald, president of B.J. Greenwald Associates, a mutual fund consultancy in Philadelphia. "Developing a strong fee structure and a good product set are advantageous, but this is all about relationships."

Wangsness said Ameritrade has another edge, though. "Larger advisers are interested in putting a slice of their business with Ameritrade in order to keep other firms honest," he said. "No one wants to put all of their eggs in one basket. There is an opportunity for us to get our foot in the door."